Key terms in private capital.

Capital Call

A demand by a fund manager (GP) for a limited partner (LP) to contribute a portion of their committed capital. Capital calls are typically issued when the fund identifies an investment opportunity or needs to cover expenses.

Carried Interest (Carry)

The share of profits that fund managers receive as compensation, typically 20% of gains above a preferred return threshold. Carried interest aligns GP incentives with LP returns.

Commitment

The total amount an LP agrees to invest in a fund over its lifetime. Commitments are drawn down through capital calls as investment opportunities arise.

Distribution

Cash or securities returned to LPs from a fund, typically from the sale of portfolio companies or dividend income. Distributions represent the realisation of investment returns.

DPI (Distributions to Paid-In)

A performance metric measuring cumulative distributions relative to cumulative capital contributions. A DPI of 1.0x means LPs have received back their invested capital.

Dry Powder

Committed but uncalled capital available for investment. High levels of industry dry powder can indicate competitive pressure on deal pricing.

Fund Administrator

A third-party service provider that handles operational functions including accounting, investor reporting, capital call processing, and compliance. Examples include JTC, Apex, and SS&C.

General Partner (GP)

The entity responsible for managing a private equity fund, making investment decisions, and executing the fund's strategy. GPs have fiduciary duties to their LPs.

IRR (Internal Rate of Return)

A performance metric representing the annualised return on investment, accounting for the timing of cash flows. IRR is the standard measure for comparing fund performance.

J-Curve

The typical pattern of private equity fund returns, where early years show negative returns (due to fees and unrealised investments) before turning positive as portfolio companies mature and exit.

Limited Partner (LP)

An investor in a private equity fund who provides capital but has limited involvement in fund management. LPs include pension funds, endowments, family offices, and high-net-worth individuals.

Limited Partnership Agreement (LPA)

The legal document governing the relationship between GPs and LPs, including terms on fees, distributions, transfer restrictions, and GP authority.

MOIC (Multiple on Invested Capital)

A performance metric showing total value (distributions plus remaining value) relative to invested capital. A 2.0x MOIC means doubling the original investment.

NAV (Net Asset Value)

The current estimated value of a fund's holdings, calculated as total assets minus liabilities. NAV is typically reported quarterly and forms the basis for secondary market pricing.

Preferred Return (Hurdle Rate)

The minimum return LPs must receive before the GP earns carried interest, typically 8% annually. Ensures GP compensation is tied to meaningful LP gains.

ROFR (Right of First Refusal)

A contractual right allowing the GP or existing LPs to match any third-party offer before an LP can sell their position on the secondary market.

Secondary Market

The market for buying and selling existing LP positions in private equity funds, as opposed to primary commitments to new funds. Secondary transactions provide liquidity before a fund's natural termination.

SPV (Special Purpose Vehicle)

A legal entity created for a specific purpose, such as holding a single investment or aggregating multiple investors into one LP position. SPVs can simplify fund structures and enable fractional ownership.

Unfunded Commitment

The portion of an LP's total commitment that has not yet been called by the GP. Unfunded commitments represent future capital obligations.

Vintage Year

The year in which a fund makes its first investment or closes on capital. Vintage year is used to compare fund performance against peers from the same period.

Waterfall

The order in which fund proceeds are distributed between LPs and GPs, typically structured as: return of capital, preferred return, catch-up, and carried interest split.